The Cost Of A Mixed Economy

[Felix]

I don't know if this matter has been tackled already, but, well, here it is:

I wanted to know where the world would be today if it weren't for government interference. Here is my very simple formula:

We have lost about, say, 2% of real economic growth every year, going for, say, 80 years, so today my money could buy: 1.02^80 =4.875 times what it actually can. Damn, I'd have a Plasma TV by now!

I wonder what you think of this. Is there a better way to calculate it?

[Inspector]

It's worse than that, I'm afraid. Consider the costs with compound interest and you'll get a better idea. Not to mention the losses via producers that simply give up and stop producing under such a system. Not to mention the billions funneled into the abyss that is foreign aid. Not to mention the billions lost to environmental regulation.

Plasma TV nothing; you'd have a frickin' flying car and longevity pill!

[Scott_Connery]

I don't think it is possible to get an answer than is even within an order of magnitude of being correct. THere are a nearly infinite number of examples of how the Mixed economy is slowing us down.

Take education. Exactly how much more educated and productive would people be if they didn't get sent to public schools? Its hard to calculate. I think it is fair to say that the average high school graduate would be several years more educated, maybe even as smart as a mediocre college graduate today. How would that impact our economy? Sure sounds like more than 2% right there to me. I would believe 10%.

And what if the portion of our country that was currently on welfare was working even at menial jobs? I figure that would be worth another couple of % from the added workforce, and the cecreased taxation.

Then are even harder things to quantify, like decisions not taken because of fear of some regulation or other. This could be an inventer who never even bothers to perform research because he knows the EPA would never stand for the end product, or the businessman who never gets started because of what a regulatory nightmare the taxation system is.

In short, I think that if the entire 20th century had been captialist instead of mixed (at best) economy, you would be considering flying cars, private space ships to take you to your moon house, and longevity treatments. A century worth of stifled innovation is a staggering concept.

[Felix]

Yes, you are right, we would be way more ahead now. Plasma TV was just a silly idea of mine, because I plan on buying one and am currently saving.

If it's 10% (which could well be considering the arguments you have given), then we would have 2048 times the current wealth. Gee, that's frightening. I can't even imagine this.

[Scott_Connery]

Think about that, and then think about where we would be if the Christian Church hadn't caused a thousand year long dark-age.

[Felix]

Think about that, and then think about where we would be if the Christian Church hadn't caused a thousand year long dark-age.

Thanks! Rub salt into my wounds.

Now I understand why many of you are so pissed about people still sticking to irrationality and socialism.

Damn.

[DavidV]

Of course it’s impossible to estimate where a capitalist society might be, but we can make some interesting projections based on the decline in price levels prior to the welfare state, and the growth in global population levels. I would use the following function to estimate the rate of wealth growth in a civilization:

Wealth is a function of the growth in the capital base. Growth in the capital base is a function of the initial size of the capital base, the investment level, and the growth in population, divided by the transaction costs, in particular the costs imposed by the welfare/regulatory state. We can assume that investment has an exponential relationship in regard to the growth in the capital base, and the population size, determined by the rate of productivity improvements (aka technological/scientific improvements). The growth in tech is itself dependent on the population growth, the capital base, and the (philosophical-cultural) transaction costs.

This all comes out in a messy equation, but what’s clear is that the capital base, the population size, and productivity improvements all have an exponential benefit on the rate of wealth creations. We can also see that all else being equal, if the population size, the capital base, or the technology is rising, we are likely to have rising wealth – sufficient enough to offset a strong increase in transactions costs created by governments.

One source of evidence for the exponential growth in wealth is the decrease in the time it takes to earn various products. The trend is clearly exponential, though it is disrupted with the rise of the regulatory state. I don’t have the early numbers, but for example, the cost of a gallon of milk was 56min in 1900, 15 min in 1950, 7 min in 1999. The cost of a chicken was 2hrs 40 min in 1900, 2hrs in 1900, 14 min in 1999. The pre- 1900 numbers are much more dramatic, I believe.

Real income rose 50 percent between 1860 and 1890. If the trend in income had continued, a 50K income in 1860 might be 1.6 million today. The average workweek declined from sixty one hours in 1870 to forty eight in 1929 to thirty four in 1999. If it had continued at the initial rate, it might be five or more hours shorter today. Of course, we will never know what products a $1.6 million income might buy that are not around becuase of statism.

Edited November 15, 2005 by GreedyCapitalist